Whatever You Lack Is Usually The Reason Behind Why You Enter Into Joint Ventures

The idea of Joint Venture attracts a lot of individuals and as a guy who has developed $1.2 Billion worth of real estate across all market sectors; I get a lot of questions seeking advice on the subject.

I wish my answer was bursting with enthuasism; BUT ...

Here is a short video on a few things you should think about before entering into a Joint Venture:

There are so many reasons for entering into a joint venture and if you’re thinking of going down the “JV" road, I have a few suggestions to make.

In the first place let's understand 'why' you are even thinking of entering into a real estate development joint venture, because I do so with great reluctance.

After all, in a joint venture you have to take into account another persons attitude, feelings, decision making process, (or inability to make a decision), whether they have a logical and sensible mind ... the list goes on; oh yes, what about their experience level?

So, getting into a real estate development joint venture must have a good 'payback' for you ... actually, for both parties.
Whatever You Lack Is Usually

The Reason for Entering Into A JV.

It would take me an age to cover all types of real estate development joint venture, so I will concentrate on just a few.

For example: The other party may have a wonderful property (development site) and wants to develop it, but does not have the knowledge.

You "love" the site and know that you could make it a very successful and profitable real estate development.

Or

Another example: Maybe two people have saved their capital, because individually their money is inadequate to undertake a project. However, combining their capital and borrowing capacity will allow the real estate development joint venture to proceed.

Irrespective of your reason, entering into a real estate development joint venture is ALWAYS second best, to doing a real estate development by yourself.

So you must be clear as to why you are doing development joint ventures and it must be secured by a legally prepared and binding real estate development joint venture agreement

A Real Estate Development Joint Venture Agreement sets out what each party will contribute, both money and effort, and sets out each party’s duties and obligations.

It also sets out what happens if the parties 'fall-out' with each other, as well as the division of profits or losses.

Note: there is a lot more at stake if you joint venture with your brother-in-law, or other relatives ... the term 'on-going-nightmare' is a phrase that readily comes to mind.

If a family real estate development joint venture brakes down, it doesn’t matter how many pages in the Joint Venture Agreement, say that you were "RIGHT," ... as far as YOUR brother-in-law is concerned, you are an 'expletive deleted .......'

Just thought I'd get that one out of the way!!

One more thing ... doing a development joint venture with a rich person, when you are many levels poorer, is also not smart.

Why?

Well, in simple terms, when “Push Comes To Shove “Money Rules ... and you know the golden rule. He who has the GOLD, RULES.

Also, if the rich guy tells you not to bother with a joint venture agreement ... it appears he/she is saving you money on legal costs ... tempting eh? ...

What he/she is really doing is taking away your legal rights. Yep, you'll have fewer rights than an employee. If that's the deal ... better to be an employee!

Fact: you have less money than him/her. With no joint venture agreement you have no rights.

I Prefer To Do a Real Estate Development
Joint Venture with People of Equal Power.

Notice I did not say of 'equal skills.' It is better if you both bring different skills, hopefully aligned to the development industry like legal, finance, real estate, architectural, engineering, building etc

In the first example I gave you above, I did my first and only JV on the basis that the partner had a wonderful city center corner location property with uninterrupted river views.

Importantly, it was I who initiated the approach to the partner, as I had a market need to satisfy. So they had the land and I had the development skill.

The next important point is that the partner wanted to develop an office building, as I did, but did not have the development skills.

The next point is that both parties had the financial capacity to do the development.

Can you see how this forms the basis of a great JV.

In blunt terms:

1. They had the land; They had financial capacity
2. I had the skills; I had financial capacity
3. They wanted office space for their own needs
4. I wanted to develop office space for my needs

We negotiated a 50/50 JV where they took half the office space created from the ground floor as they had a retail need and I took the upper levels.

We both provided 50/50 cash.

I earned a development management fee as I did all the development management work. And both partners worked well together for a successful outcome.

It is important to note however, that the whole JV was set out in an agreement, where it was clear what both parties had to do and contribute.

In the second example I gave, of two individuals wanting to combine their financial capacities, there is a tendency for both to concentrate on the money aspect; and this is understandable.

I would suggest that they concentrate on acquiring the development skills first.

From my experience of teaching people how to be developers, I know for a fact that many people start off by buying some land and then start on a voyage of discovery motivated by the question, “What Do I Do Next?”

There is a myth floating around the world that development skills are something that we are all born with; like it is just natural; we get it with out mother's milk. How we have to do is buy a block of land and we will know what to do naturally.

We all seem to know a guy we went to school with, who developed some property and became successful; but we also remember he wasn’t too bright at school, so if he can do it then someone as intelligent as us can do it even better.

I mean I’ve heard that stuff being said, which ignores so many things that has happened along the way to improve the dumb guys knowledge of the industry.

So let’s get away from intelligence and let’s talk about industry knowledge. Development is a business, like any other and it has rules, regulations, procedures and processes like any other.

So before anyone thinks about doing a JV they should start by learning how the business works by visiting me at:

www.realestatedevelopmentcoach.com to learn how to develop residential or commercial real estate.

I’ve developed $1.2 Billion worth of the stuff and am the only one in the world wide web teaching individuals how to do it for themselves.

Considering the cost and commitment required for development it is smart to invest in education at the beginning. You’ll be surprised and amazed at what I get you to do before you even look at buying land.

But as I tell me students, including experienced developers;

To conclude on the issue of money;

The prime requirement of getting development finance is in you creating a financially viable development proposal. Yes there are other issues; but all of them are aimed at the creation of a financially viable development deal and that is what I teach you.

By definition, if you don’t have a financially viable deal, you will not get the money from any investor, partner or financier.

And logically, if you don’t have a financially viable development deal “you” don’t want to do it either.

If what I have said is true, and it is, then the most important action you can take is to learn all the elements that allow you to create a financially viable development ... fair comment?